A note for new entrepreneurs.
One of the most common mistakes made by new business owners is to extend credit to clients and not charge them extra for paying late and treating you like the bank. I made this mistake. In fact, most of the business owners I know have made it.
If you make this mistake, you will go down a road to some difficult lessons. Clients will pay you late – because there’s no penalty for late payment and, therefore, there’s no reason to pay on time. You will also have difficult conversations with clients if you start to enforce rules you haven’t enforced before.
I recommend that you adopt the following policies, no matter what your business:
1) Get paid in advance for everything. This is true for both products and services.
2) If you allow clients to make payments for anything (ignoring rule one), you should charge late fees and interest when clients pay late.
If you don’t set and enforce these policies, you will eventually learn the hard lesson that there are people who simply don’t pay their bills on time – and a few who never pay at all. As you have one bad experience after another, you will begin to adopt rules to keep bad things from happening again.
The first hard lesson is that money owed to you is never paid in full. And the more this debt grows, the less likely it is that you’ll be paid at all. This is no joke: I’ve had someone tell me that they can’t ask a client for the $70,000 they’re owed . . . because “They’re my best client.” All I could think of is, Who’s your worst client?
When debt grows like that, you eventually have to have a difficult conversation. Two things will come out of that. First, you will accept less than the full payment just to get rid of the debt. Second, you will lose this client. Either you will drop them or them will drop you.
Good riddance, I say.
The most I ever lost was a couple thousand dollars – which hurt a lot at the time. But it taught me to put rules in place to keep this from happening again.
Here’s the very odd part about putting the policy in place to get paid in advance for everything: There’s never any push-back. I have coached thousands of business owners to do this. Some had been allowing clients to owe them money for years.
And ninety-nine percent of every one who ever instituted this policy and reported back to me was surprised that no one batted an eye. Paying for things before you take delivery is a basic, non-controversial policy. Just do it.
If you wish to help your clients make payments, there may be several options available to you. Depending on your industry, your suppliers, and the manufacturers you work with, you may be able to point them to various programs to finance the products and services you provide.
There are all kinds of financing options, including leases, that are designed specifically to help businesses buy things and make payments over time. Find them and introduce your clients to them.
More juicy info for first time entrepreneurs . . .
|THE ULTIMATE GUIDE FOR FIRST-TIME ENTREPRENEURS|
The Small Biz Quickstart Workbook
Author: Karl W. Palachuk
Karl has worked with thousands of business owners and managers – and helped several of them make the move to self-employment. With this workbook, Karl will help you make the launch as well. This workbook is guaranteed to help you learn about what it takes to start and run your new business.